TaxTMI 
TaxTMI 
2023 (11) TMI 925
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....on. During survey, the statement of assessee were recorded wherein, vide replies to Q. No. 17, 18 and 19, the assessee surrendered excess stock of Rs. 42,52,775/-, advances of Rs. 8,16,000/- and excess cash of Rs. 9,35,725/-; all aggregating to Rs. 60,04,500/-. Thereafter, while filing return of income of relevant AY, the assessee faithfully honoured his surrender and disclosed additional income of Rs. 60,04,500/- as "Income from Business" u/s 28 and paid taxes @ normal rate of tax as applicable to business income. During assessment-proceeding, the AO issued notice dated 02.03.2021 asking the assessee as to why the excess stock, advances and cash should not be treated as deemed income u/s 68 to 69D. In response, the assessee filed reply which is re-produced by AO in Para No. 5 of assessment-order. The assessee submitted that he was engaged only and only in the manufacturing business of footwear and there was no income other than business income available with the assessee which could be assessed u/s 68 to 69D. The assessee also submitted that he has made surrender of income to buy peace of mind and avoid time-consuming litigation and faithfully offered the surrendered income in the....
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....e rate of 60% + surcharge + cess. This stand is further supported by the discussions made in the preceding paras. In view of the provisions of section 271AAC of the Act, I am satisfied that the penalty proceedings must be initiated u/s 271AAC in the matter; and hence, the same are hereby initiated. 9. In the course of survey, a diary BI-1 was impounded which contains details of Rs. 8,16,000 given by the assessee to various persons as advance. The assessee has not shown the amount of Rs. 8,16,000/- in his books of accounts and also could not explain source of the said amounts given to various person as advance. The assessee has offered the said amount of Rs. 8,16,000/- in his Income Tax Return. In view of the same and in view of the fact that the said amount was accepted by the assessee through his aforesaid statement, and after considering all the facts and circumstances of the case, there remains no ambiguity that the amount of Rs. 8,16,000/- clearly comes under the ambit of unexplained investments as envisaged u/s 69 of the Income Tax Act, 1961. The said amount of Rs. 8,16,000/-is, therefore, considered as the assessee's income u/s 69 and is taxed u/s 115BBE of the Act a....
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....g opportunity to the assessee is not legal and the Ld. CIT(A)-3 erred by ignoring the objection of the assessee and passed the order, which is not proper. 3. That the assessment order passed by the Ld. ACIT Central Circle, Ujjain (MP) without issuing notice u/s 143(2) is bad in law and the Ld. CIT(A)-3, Bhopal, erred by ignoring the objections of the assessee and passed the order, which is not proper. 4. That, the ld. CIT(A) -3, Bhopal erred by confirming the order passed by the ACIT Central Circle, Ujjain (MP) which is without jurisdiction. The ITO, Ward 4.4, Indore, was the jurisdictional AO in the case of the assessee and no notice u/s 127 of the I.T. Act was given to the assessee prior to transfer of the case to the ACIT, Central Circle, Ujjain from ITO, Ward-4(4), Indore. 5. That, the disclosed income of Rs. 60,04,500/- is income from business and the same has been assessed (i) u/s 69 - Cash in hand Rs. 9,35,725/- , (ii) u/s 69B - Stock Rs. 42,52,775/-, (iii) u/s 69 - Advance for purchase of Raw Material - Rs. 816000/- and rate of tax has been applied u/s 115BBE of the Act is without material and without basis and is contradictory to the facts of the....
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....ion is that for invoking deeming provisions under sections 69, 69A, 69B & 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs. 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of st....
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....separable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. 14. To conclude sum of Rs. 8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only." Ld. AR submitted that the reliance of CIT(A) on the decision in M/S SVS Oil Mills (supra) is mis-placed. Ld. AR submitted that in that case, the AO, CIT(A) and ITAT, all three authorities, recorded a clear finding that the assessee neither recorded the excess-stock/excess- cash in books of account nor declared in the return of income and based on such finding, the Hon'ble High Court was pleased to hold that no substantial question of law arose in assessee's appeal. But, in the present case, the assessee has very much recorded the excess- stock in books of account, credi....
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....h found during survey. While the assessee has declared the surrendered income as business income in the return of income, the lower-authorities have treated the same as deemed income u/s 69/69A/69B of the Act. Since the surrendered income consists of three components, namely (i) excess-stock, (ii) advances, and (ii) excess-cash, we would like to deal these components separately one by one. Excess-Stock: 10. Firstly, we are in agreement with the very first and foremost contention of Ld. AR that the assessee is aged about 72 years, engaged in the business of manufacturing for over 35 years and that was the sole source of income found by authorities. Therefore, it is reasonable to accept that the excess-stock was outcome of suppressed business income over the years. 11. Secondly, it is pertinent to note that during the course of survey what was detected in respect of the stock was that the physical stock found at the business premises of the assessee was excess in comparison to the stock recorded in the books of account. It is not the case of the AO that the excess stock found during the survey was separated from other stock of the assessee but it is one and common nature of ....
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.... 115BBE of the Act are applicable on the surrendered income of Rs.1,41,75,568/- we find that Ld. CIT(A) on examination of the fact, settled judicial precedence, also appreciating that the alleged income is business income earned by the assessee during the normal course of its business and was part of the total business stock available at the business premises and also observing that provisions of section 115BBE of the Act are applicable from 01.04.2017 and are thus not applicable on the case of assessee as the search was carried out on 15.12.2016 observing as follows: Ground No 1 to 5:- Through these grounds of appeal, the appellant has challenged the treating of Rs. 1,41,75,568/- declared during search as unexplained investment u/s 69 r.w.s 115BBE of the Act and not as a business income. During the course of search, valuation of stock was taken by registered valuer and net weight of gold was found at 25,857.490 gms valued at Rs. 5,67,73,734/-, however, the value of gold as per books of accounts of the assessee was at 19,423.678 gms valued at Rs. 4,25,98,165/-. Therefore, a difference in stock of 6433.812 gms was found amounting to Rs. 1,41,75,569/-. Statement of Shri Anoo....
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....e plea of appellant interalia facts of the case it can be easily said that the instant case revolves around applicability of two different sections i.e. section 69A and section 115BBE of the IT Act. (a) Applicability of provisions of section 69A (unexplained investment) of the Act:- The AO found appellant of guilty of invoking provisions of section 69 of the Act and has re-classified the income of the appellant u/s 69A of the Act. before moving ahead, I find it important to quote relevant provision section 69 of the Income Tax Act which is as under:- "69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."[emphasis supplied] Any assessee can be held guilty of invoking provisions of section 69 of the Income Tax Act if, ....
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....d trading of gold ornaments, therefore, the excess stock found during search was earned out of business income by the appellant. Hon'ble Ahmadabad ITAT in the case of Chokshi Hiralal Maganlal vs DCIT, (ITA No 3281/Ahd/2009 dated 05.08.2011) has held that "the provisions of section 69A/69B of the IT Act can only be applied the case where the asset is separately applicable and separately identifiable and it should have independent physical existence of its own. Since the excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Similar, view has been taken by Hon'ble jurisdictional Indore tribunal in the case of M/s Shahnai Shriram Market vs ITO 1(1), Ujjain (ITA No 658/Ind/2014 dated 15.05.2015. (a)(i) It is a settled law that additional income declared on account of excess stock is business income of the assessee. This proposition finds support from the following case laws:- (a) Bajrang Traders Vs. ACIT (Circle)-2, Alwar (ITA No. 137/Jp/17 dated 17.03.2017). In this case, it is ....
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....see to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon'ble Gujarat High Court in the case of Fakir Mohd. Haji Hasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, the Hon'ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. (c)....
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....le under the head 'business' and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO. (d) Chokshi Hiralal Maganlal Vs. DCIT, Ahemadabad (ITA No. 3281/Ahd/2009 dated 05.08.2011) In this case, it is held as under:- 9. Since in the present case excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but i.e. the part of overall physical stock found, the investment in the excess stock 'has to be treated as business income as per detailed reasons ....
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.... and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Further, the excess stock so found is part of the regular business, therefore, following decision of Hon'ble Tribunal Bench Jaipur in case of Ramnarayan Birla (cited supra), the same has to be taxed under the business income. Otherwise even if the same is taxed under s. 115BBE of the Act, the provisions of not allowing the set off has come into effect from 1st April, 2017. (g) ACIT vs M/s A Star Exports and M/s Asian Star Diamonds International Pvt Ltd (2015) 5 TMI 1312 (ITAT Mumbai) wherein it has been held as under:- "8. We have considered rival contentions, carefully gone through the orders of the authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. DR and AR during the course of hearing before us. From the record we found that the assessee a partnership firm is in the business of trading, import, export, manufacturing, wholesale and retail dealing in diamonds, gems and jewellery The main object....
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....essee at 114/116, Mittal Court, 'C' Wing, 11^th Floor, Nariman Point, Mumbai - 400021. This stock was valued at 13,47,63,640/- by the income tax valuer. Consequently the assessee declared this amount as stock in trade and this contention of the assessee was accepted by the Investigating officer. Who has released the stock after valuation and not impounded/seized. The statement of Shri Vipul P. Shah Partner of the firm was again recorded on 20.11.2012 wherein in reply to the question no. 22 he has stated that this undisclosed income is generated through unrecorded trading of diamonds. Q.22 Please explain as to how this undisclosed income is generated? Ans: it is through unrecorded trading of diamonds. " It is clear from the above facts that the declaration was related to business stock in trade hence it is evident that the declaration amount is required to be assessed under the head' Income from Business or profession. Thus, the undisclosed income of 13,47,63,640/- declared voluntarily by the assessee for A.Y. 2011-12, is undisclosed stock held under the customary trading of the business and hence should be treated as the business income of the assessee firm and....
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....rendered income on account of excess stock valuing at Rs. 1,41,75,568/- found during the course of search. Thus, grounds no. 1 to 3 raised by the revenue are dismissed." 12. Therefore, once the facts emerging from record shows that the excess stock found during survey was a part of entire lot of stock of assessee, part of which is recorded in books of account and part of the same was not found recorded and therefore, treated as excess stock at the time of survey and consequently surrendered by the assessee and also offered to tax in the return of income then the excess stock cannot be treated as deemed income u/s 69 or 69B of the act in view of the judgment of Hon'ble Rajasthan High Court and Coordinate Bench of this Tribunal cited above. In fact, we find from the order of first-appeal that the CIT(A) has himself made following conclusion on Page No. 32 of his order: "Further, I have also followed the decisions on which the appellant has placed reliance on the issue involved here in my earlier appellate orders, but the above aspects have not been discussed by me. Therefore, I am bound to deviate from my earlier stand where the contentions of the appellants have been acc....